Lynne Deur and Sara Michel
The chief competitor to McConnells Forging the Peninsulas is The Making of Michigan by Lynne Deur and Sara Michel.18 These two texts are similar: both are informative and readable; both devote almost half of their coverage to Michigan before statehood; and both are written for junior-high or possibly even high-school audiences. Both textsespecially Deur and Michelssometimes express too strong a faith in the ability of the federal government to solve economic problems. The Making of Michigan, at 289 pages, is about 100 pages shorter than McConnells text.
Deur and Michel have written a well-focused book that clearly covers the major periods in Michigan history. They outline the fur trade in Michigan and describe the international fur market that the French and Indians created. Here the authors are rightly skeptical of strong government control. Students reading this text can see how Frances problems with a government-enforced monopoly helped the British prevail in North America in general and in Michigan in particular after 1763.
Here is the situation. The French fur trade was established as a monopoly. By fixing prices and restricting the number of traders, the French provided incentives for other Frenchmen and other Europeans to come to America, break the rules, and trade furs at market prices. The Frenchmen who did this were labeled coureurs de bois. Deur and Michel describe two of the most famous coureurs de boisPierre Radisson and Sieur de Groseilliers, who explored Lake Superior up to Hudsons Bay. As Deur and Michel point out, Radisson and Groseilliers "were not forgiven for trading without a license. French officials fined the pair and ignored their stories of Hudsons Bay. The two angry traders later went to Europe and convinced businessmen from England to build trading posts along the bay. The Hudsons Bay Company, formed in 1670, became a leader in the business and gradually helped the British to surpass the French in the fur trade." 19 In other words, Frances state-supported monopoly could not withstand British competition.
Government intervention in economic development was also a problem with Antoine de La Mothe Cadillac, a French official who founded the city of Detroit. Cadillac became, as Deur and Michel show, "something similar to a feudal lord of medieval times in Europe." French landowners in Detroit had to pay fees and grain to Cadillac and also work on his farm free of charge. In analyzing Cadillacs state-directed economy, the authors note
The settlement at Detroit did not grow as rapidly as Cadillac had hoped. Cadillac himself was a difficult man for settlers to work with, since he charged high prices and had little compassion in his business dealings. He also had enemies throughout New France who were more than willing to spread news about the settlements shortcomings. Traders in other areas were angry because he was able to take away much of their business. The Jesuit priests accused Cadillac of using the Indians and giving them alcohol in exchange for furs. Added to these problems was the fact that the French simply were not as interested in settling down and farming or building towns as were people in the British colonies.20
Even though the British eventually triumphed in North America, they had poor entrepreneurial skills; and they took the Indians for granted in the fur trade. The British refused to give gifts to the Indians, a custom the French started, and refused to send agents to Indian villages to trade with them directly. Instead, as Deur and Michel note, "the Indians were instructed to bring furs to the British forts. This made the Indians unhappy since it involved more work for them." 21
Years after the Revolutionary War, when the Americans took charge of Michigan, they continued much of the British system. In 1796, President Washington promoted a government-operated fur company to compete with the British in Canada. A branch of this company, called a factory, was established at Detroit. Deur and Michel correctly argue that "the factory system did little to lessen the British control of the trade, however. The Indians complained that American goods were not as good as British products, and they resented the American ban on liquor." 22
Deur and Michel describe John Jacob Astor, the private fur trader, competing with the government company, but their text would be stronger if they had a fuller discussion of the Astor story. Astor won the competition because he had an efficient vertically integrated company that produced quality products at low prices.
The story behind Astors triumph reveals much about the workings of an economy. It is also dramatic and would interest students. When Thomas McKenney, head of the government company, began losing money, he lobbied Congress to increase his subsidy and ban private enterprise in fur trading. "What is this," asked William Woodbridge, Michigans territorial delegate to Congress, "but giving to the Secretary of War power to create a Monopoly?" In 1818, Astors agents on Mackinac Island complained that the factories "have become so numerous and are of late provided with such extensive means, as threatens in a very few years more, to annihilate private competition, and throw the whole trade into the hands of the Government." To save his business from being swallowed by a government monopoly, Astor urged Congress to investigate the government factories and compare their inefficiency, even with a $300,000 subsidy, with his efficient and unsubsidized operation. Congress did sponsor an investigation of the government factories and the results exposed McKenneys mismanagement of federal funds. In 1822, Congress voted to end subsidies to the fur factories and McKenney had to close them, sell what was left, and return the proceeds to the government treasury.23
The failure of the government fur company is embarrassing, but instructive. Deur and Micheland McConnell, tooneed to tell students this story in more detail. Even the Committee on Indian Affairs in Congress said that this episode was useful to study "not only as a matter of curious history, but for the lesson it teaches to succeeding legislators." 24 The lesson is that in the world of commerce the profit motive, the structure of incentives, and the stifling tendencies of bureaucrats are such that those businesses run by entrepreneurs will consistently outperform those run by government. The fur trade taught Michiganians this lesson, but they soon forgot it and had to learn it again the hard way when statehood dawned and the railroad era began.
Deur and Michel use several paragraphs to describe Michigans internal improvement program. They explain that the legislature "passed the bill for the transportation plan and gave [Governor] Mason the power to secure a loan for five million dollars to get things going." As we have seen, however, these government-run canals and railroads failed miserably and cost Michigans taxpayers dearly. Deur and Michel seem to blame hard times and insufficient government investment. They conclude "The state was able to continue its successful central line westward all the way to Kalamazoo. But by 1846 Michigan officials and citizens had experienced all the railroad building they wanted. Both the central line and the southern line, which went from Monroe to Adrian, were sold to private companies. Under new management, the lines were completed within a few years." 25
Maybe the problem here was one of too much, not too little, government investment. Lets look at some evidence. The Clinton and Kalamazoo Canal cost $350,000 to build and earned only $90.32 in total revenue. The railroads were not much better, according to Robert Parks, the foremost historian of Michigans early railroads. The Michigan Southern, according to Parks, was "almost worthless. The bed was unstable, the curve too sharp for use of locomotives, and the superstructure too rotten to bear the weight of heavy cars or engines." 26
Also, what Deur and Michel call the "success" of the Michigan Central was limited as long as the government was running the railroad. Profits on the Detroit to Ypsilanti run were outweighed by long-term structural defects in the railroad. Again, Robert Parks has this to say:
From the time it reached Jackson in 1842, the roads facilities were strained to meet the demand for heavy hauling. Trains were operated at night during seasons of peak demand, although the practice was regarded as dangerous; during the daylight hours, overloaded locomotives were run at twice the recommended safe speed. Under the strain of continuous operation and the jarring impact of high speed on strap iron rails, locomotives and cars were shaken to pieces, and the cost of operation mounted dramatically. Rails were broken and timbers crushed under the heavy loads bouncing over their surface.27
Finally, Deur and Michel might want to qualify their statement that "by 1846 Michigan officials and citizens had experienced all the railroad building they wanted." They experienced all the railroad building they wanted at government expense. They still wanted Michigan railroads to go to Chicago. When the state sold the Michigan Central, the new private owners had to agree that within three years they would rebuild the road and extend it to Lake Michigan.
Deur and Michel do describe the Constitution of 1850, which barred the state government from building any more railroads. They explain that "Lawmakers wanted to make sure that the mistakes of the internal improvement program did not happen again." 28
With the Constitution of 1850 in place, Michigans "era of entrepreneurs" began. Deur and Michel clearly describe the growth of lumber and iron in Michigan. The crucial offshoots of these industriesfurniture, carriages, stoves, and autosalso receive good coverage. The results for Michigan were national prominence and sharp economic growth. As the authors note, "In 1850 about one percent of Michigans workers had what could be called factory jobs. By 1900 that figure had risen to twenty-five percent." 29
Deur and Michel give solid coverageten pagesto the auto industry, which was the capstone of Michigans industrial success. Many historians argue that advantages of location and resources determine which cities and states will prosper. But this view overlooks the role that entrepreneurs have played in overcoming disadvantages and redirecting the flow of raw materials. Cities from Chicago to New York could have become auto centers, but entrepreneurs in Detroit prevailed over all contenders.
The authors conclude that "Henry Ford and William Durant and David Buick and Ransom Olds happened to be Michigan people who . . . gave the industry the spark it needed and helped to make Michigan a new industrial leader." 30 Telling the stories of those entrepreneursand that of others such as Will Kellogg in cereal and Scott Gerrish in railroadshelps students appreciate economic growth. And it gives them the sense that they, too, can overcome adversity and make something of their lives and improve the world. The story of entrepreneurial success is the story of hope, and this is what Michigan had plenty of in the late 1800s.
One of the most dramatic trends in 20th-century America has been the growth of the federal government. Deur and Michel believe that the federal government needed to increase in size and scope of operation. "Toward the turn of the century," they write, "the problems of the poor and the selfishness of the wealthy gradually forced Americans into action." The authors tell the students that "Life was no longer simple. If America was to survive these [industrial] changes the government had to begin to step in with laws that would help bring order to the confusion." 31
Deur and Michel are right to say that serious problems existed. Could private enterprise have solved some of these problems? Was more government really necessary for "America to survive"? Michigans two previous experiments with government in the economythe fur trade and the railroadswere both colossal failures. Only when the role of government in Michigan was dramatically and constitutionally curtailed did Michigans economy begin to prosper and expand. This fact puts a strong burden of evidence on the advocates of more government intervention. Certainly there were problems in Michigans expanding economy of the later 1800s. But more government may not have been the best solution.
Two examples that Deur and Michel give of the necessity for government interventionworkers compensation and railroad regulationare very argumentative. Many historians, for example, such as Albro Martin and Forrest McDonald believe that regulation stifled the creativity of the railroads and led to their decline. Michigans workmens compensation law, passed in 1912, made employers liable for accidents to employees on the job. Michigans previous law was in the old English common law tradition that said employers were liable for damages only if they were the cause of the accident. Michigans new workers compensation law was copied by other states, but that alone doesnt make it a blessing. When employers pay damages for accidents caused by careless employees the costs of doing business rise and all consumers, rich and poor, must pay.32
Deur and Michels bias toward a strong central government is also apparent in their discussion of James Couzens, a U. S. Senator from Michigan in the 1920s and 1930s. The authors tell the students that "A government which did not serve the needs of the people, [Couzens] felt, needed changing. One of his accomplishments [as mayor of Detroit] was setting up city-owned and operated streetcar and bus lines. These served the people much more completely and cheaply than private lines had done." 33 No evidence, however, is presented for this assertion.
An expanding government means higher taxes, and Deur and Michel have to deal with Senator Couzens public stance for a high progressive income tax. They describe his famous battle with Andrew Mellon, the U. S. Secretary of Treasury, who masterminded the tax cuts of the 1920s. According to Deur and Michel, "Mellon, one of the richest men in the country, worked to make income taxes lower for wealthy people." 34 Thats because Mellon worked to make income taxes lower for all people.
To be balanced Deur and Michel need to point out that during the 1920s, Mellon secured eightfold cuts for lower incomes and only threefold cuts for higher incomes. The authors might have also mentioned that after the Mellon tax cuts (1) 98 percent of Americans paid no income tax whatsoever, (2) more federal income tax revenue came to Washington after the tax cuts than before, and (3) that during the 1920s the U. S. ran budget surpluses every year.35 Making these points would give students a chance to hear both sides of the issue.
On the subject of the Great Depression, Deur and Michel seem to say that private enterprise pushed us in and government bailed us out. There are three parts to their argument.
First, during the 1920s, "Prices had gone higher and higher." 36 This is an unfortunate slip. Actually, prices were very stable in the 1920s. During Calvin Coolidges presidency, from 1923 to 1929, inflation averaged a remarkably low one percent per year. Few presidents this century have had such low inflation rates.37
Second, Deur and Michel argue that this allegedly rapid increase in prices helped cause unemployment. The problem here is that unemployment under Coolidge averaged only three percent per year. In fact, inflation and unemployment both were so low under Coolidge that he easily has the lowest misery index (which is derived by adding the inflation and unemployment percentages) of any of the last fifteen presidents.38
Third, Deur and Michel repeat what economists label "the underconsumption thesis," the idea that America in the late 1920s had too many high priced goods and too few people who could afford to buy them. This interpretation dominated the textbooks for many years. Recently, however, the statistical evidence on consumption in the 1920s has been more widely publicized. The data show that the ratio of consumption to national income did not fall, but actually rose slightly during the 1920s. As economist Peter Temin of the Massachusetts Institute of Technology has pointed out, "The concept of underconsumption has been abandoned in modern discussions of macroeconomics. . . ." 39
The authors problems with causes of the Great Depression are repeated when they describe Presidents Hoover and Roosevelt and the New Deal. Deur and Michel assert that Hoover "was convinced that things would get better if the government kept out of it." Recently, historians have been abandoning this view. Hoover helped create the federal Farm Board (funded at $500 million) to fix farm prices, and the Reconstruction Finance Corporation (funded at $1.5 billion) to give emergency loans to banks, railroads, and other corporations. To pay for these and other government programs (such as new public works projects), Hoover and Congress sharply hiked income tax rates, which transferred money from private enterprise to government. In fact, Roosevelt himself accused Hoover of "reckless and extravagant" spending, of thinking that "we ought to center control of everything in Washington as rapidly as possible," and of presiding over "the greatest spending administration in peace times in all our history."40
More government programs came when President Roosevelt began the New Deal. Deur and Michel say that "[b]y 1934 the New Deal was beginning to improve conditions throughout the country." 41 As we have seen, however, in analyzing the McConnell text, government programs did not get America out of the Depression.
On the subject of unions, Deur and Michel defend them not with evidence but with carefully constructed language: "In these hard times [the Great Depression], workers saw the need to organize and demand higher wages." 42 By writing that workers "saw the need" for unions, the authors imply to students that unions are naturally a good thing. Evidence is not needed; unions are simply the sort of thing that Michigan people "saw the need" to have.
Such enlightenment was apparently contagious. The authors next tell us that "About the same time, the federal government saw the need for workers to organize and bargain for better wages." 43 Twice told, the lesson for students is obvious: Sensible people see the need for unions. Deur and Michel may not have intended to convey that idea this way, but that is how it may come across to many students.
The section on modern Michigan in the Deur and Michel text is short. In it, the authors praise the growth of government. In describing the administrations of Governor G. Mennen "Soapy" Williams (1948-1960), they formulate the issue this way:
One of Michigans most serious problems during Williams terms was finding new ways to raise more money. The states three percent sales tax did not bring in enough money to take care of the increased services needed by a growing population. Governor Williams worked to place a tax on peoples incomes as well as a tax on large industries.44
What is strongly implied here is that when population grows, government must step in to provide "needed" services. Private enterprise cant do the job. Taxes, therefore, must increase and government must provide programs.
Right away one fact challenges this theory. From 1900 to 1930, the population of Michigan doubled, something it has not done in the years since then. Detroit even spiraled from 285,704 to 1,568,652 during the 1900-1930 period.45 Yet no significant tax increase took place. Entrepreneurs and urban politicians largely built the services and the infrastructure for Michigans influx of people in the early 1900s. The growth of governmentat the state and national leveltook place mainly after 1930, when Michigans rate of growth began to decline.
What about the quality of government services that have grown in Michigan since 1930? Often they have been so poor that cities throughout the stateand even the state itselfhave begun privatizing government agencies. For example, the state Accident Fund, county landfills, wastewater treatment plants, school busing, and garbage collection are among the many services being privatized throughout the state. When Mayor Woodrow Stanley of Flint simply threatened to privatize garbage collection in the city, the union offered to save almost $1.5 million from the $6.2 million budget for garbage collection through increased efficiencies.46
Cities that dont privatize usually have high taxes. Today, the city of Detroit refuses to privatize any city services, and it imposes a tax rate seven times higher than the average for all Michigan municipalities. In a study done for the Mackinac Center for Public Policy, Stephen Moore and Dean Stansel demonstrate that the fastest growing cities in Michigan in the 1980s were the ones with the lowest tax rates.47
One final point about taxes in modern Michigan concerns the issue of building highways. According to Deur and Michel, "Great strides were also made in transportation in the years following World War II. A highway program begun in 1957 gave the state miles of nonstop driving free of tolls. These interstate highways, paid for largely by the federal government, link Michigan with other states. They also link cities and towns in the Lower Peninsula." 48 This explanation seems to suggest that Michigan is getting its interstate highways free from the federal government. Such a presentation encourages students to believe that we need to rely on government to give us things we need.
The truth is that Michigan has long paid into the federal government more in gas taxes than it has received back in highways. John Taylor, in a study for the Mackinac Center for Public Policy, shows how the allocation formula puts Michigan at a disadvantage with other states. In 1992 (the most recent year for available data) Michigan paid $698 million in gas taxes to the federal government and received back just $382 million from the Highway Trust Fund. In other words, Michigan would be much better off if it built and maintained its own interstate highways.49 That provocative statement could be used in the classroom to challenge students to think about taxes and economic development. Some students might even think of new ways to use human creativity and individual initiative to solve Michigans problems.